In July 2010, the U.S. Drug Enforcement Administration met with
Mallinckrodt
MNK 10.37%
PLC, informing the pharmaceutical company that the agency viewed it “as the kingpin within the prescription drug cartel.”

Now, more details and questions about Mallinckrodt’s role in the opioid crisis are emerging, including whether it effectively guarded against products leaving legal distribution channels as required by law.

Much attention over the sprawling opioid litigation against the pharmaceutical industry has targeted Purdue Pharma LP and its prescription pain pill OxyContin, which has sold more than $35 billion since launching in 1996.

But other companies are undergoing fresh scrutiny as more legal documents become public. Mallinckrodt is among the manufacturers, retail pharmacies and wholesalers accused by states, cities and counties of helping cause a public-health crisis by misleading marketing and failing to stop excessive amounts of drugs from flooding the country. The companies broadly deny the allegations.

Pills, Pills, Pills

Hydrocodone was the most common opioid sold in the U.S. from 2006-12 and made up more than half of Mallinckrodt’s opioid sales during that time period.

Thousands of pages of Mallinckrodt emails, employee depositions and internal company documents, including the kingpin reference, were recently unsealed in federal court in Ohio, where more than 2,000 lawsuits have been consolidated. The documents show that Mallinckrodt grew sales of prescription opioids while the nation’s addiction crisis blossomed, even as employees and outside parties expressed concern over the effectiveness of the company’s programs to guard against diversions and over-ordering.

Mallinckrodt has denied the allegations raised in the lawsuits, saying the suits “look to sensationalize and exploit a public health crisis for money.”

Mallinckrodt, which has U.S. headquarters in St. Louis but is domiciled in Ireland, makes branded and generic medicines as well as raw materials for rivals’ products.

Mallinckrodt’s opioids represented 38% of the total prescription opioids sold in the U.S. from 2006 to 2012, making it the country’s single largest manufacturer of prescription opioid pills during that period, according to a Journal analysis of more than 378.6 million transaction records in a DEA database. Altogether, some 92.6 billion prescription opioids were purchased by pharmacies throughout the U.S. and its territories from 2006 to 2012, according to the Journal’s analysis.

Some 55% of Mallinckrodt’s 34.8 billion pills sold contained hydrocodone, the most widely prescribed opioid in the U.S. in the period examined. About 30% of Mallinckrodt’s pills contain oxycodone. The remaining 15% of its pills contained other opioid products.

The database was obtained by plaintiffs’ attorneys representing municipalities in the consolidated cases. A three-judge panel ordered the data be made public as the result of a lawsuit by the Washington Post and HD Media.

This isn’t the first time Mallinckrodt has been criticized for its monitoring program.

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The Justice Department announced a $35 million agreement with Mallinckrodt in 2017 to settle allegations that the company didn’t alert the DEA about excessive or suspicious orders of prescription opioids between 2008 and 2012. Mallinckrodt didn’t admit it broke the law but agreed its monitoring system didn’t meet certain DEA standards.

Beyond opioid litigation, the company has faced accusations of deceptive marketing and pricing controversies tied to its anti-inflammatory drug H.P. Acthar Gel. Sales for the drug, which carries an approximate $39,000-per-vial list price, last year totaled about one-third of Mallinckrodt’s $3.2 billion revenue.

Mallinckrodt said in a statement this week to the Journal it is addressing Acthar’s “legacy matters” and believes in the drug’s benefits.

The company’s stock, which peaked at about $132 in 2015, is down about 70% year-to-date, to around $4.61.

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Mallinckrodt has made opioids for decades, generating $18 billion from sales of all of the company’s opioids from 1996 to 2017, according to court records. “We plan to continue to be a leader in pain,” Chief Executive
Mark Trudeau
told analysts in 2013.

Companies must legally flag “suspicious orders,” defined by the government as “orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency,” and report them to the government.

Mallinckrodt said in its statement that the DEA set certain limits for opioid production that it followed and that it “operated an industry-leading suspicious-order monitoring program.”

In a December 2007 letter, the DEA told drug companies that relying on mathematical formulas to spot suspicious orders—including formulas tracking sales history—was inadequate. For instance, if a pharmacy always placed unusually large orders, there would be no deviation, the DEA said. At the time, Mallinckrodt relied on a formula that tracked customer sales history, according to unsealed company records and deposition testimony.

Karen Harper, then the company’s senior manager of controlled-substance compliance, testified in a deposition earlier this year that the DEA’s letter amounted to a suggestion and didn’t require compliance. But in 2008 she had come to believe her employer should enhance its monitoring, she testified.

From 2008 to 2009, the company stopped using a formula and instead relied on a form that verified a wholesaler was registered with the DEA while Mallinckrodt employees used their judgment to determine if a sale looked suspicious, according to testimony and emails.

“We didn’t have a—a computer system that was doing it. It was just informal,” James Rausch, a former employee, testified in a deposition.

Mallinckrodt started an enhanced monitoring program in 2009 that included a formula again. But in a memo the next year to Ms. Harper, an ex-DEA employee consulting for Mallinckrodt to review its monitoring program described the company’s formula as “problematic,” and wrote that Mallinckrodt would be “unnecessarily exposing itself to potential liability” by using it.

Ms. Harper and Mr. Rausch didn’t respond to requests for comment. Mallinckrodt told the Journal the consultant “misunderstood” its program.

Sometimes when orders were flagged to be reviewed, the orders shipped before reviews finished, employees testified. Ms. Harper testified that some of these orders could have been dangerous orders.

Between 2003 and 2011, the company logged more than 53 million orders, cited nearly 38,000 as potentially suspicious and stopped 33 of them, according to court documents.

When potentially suspicious orders needed to be investigated, sales managers were sometimes called upon to help and clear the orders to be filled, according to internal company documents and employee depositions. Sales employees’ bonuses were tied to sales and volume. Mallinckrodt employees testified they didn’t view this as a conflict of interest when asked in depositions. The company said in its statement that sales employees weren’t authorized to “release” orders that had been flagged as potentially suspicious.